Category: The Business Side

If you are going to take a break from digital “bliss” by putting your phone down, take the time to read this Harvard Business Review primer on augmented reality. “Augmented” is not the same as the “virtual” reality which your children love and of which you make fun. Augmented reality bridges physical reality with the data that all of the machines around us are generating utilizing a screen attached to our face (aka glasses). Think of a heads up display on a fighter jet.

So you can be on a plant floor, retail store, trading floor, or hospital and see the reality in front of you merged with the data that can assist you in making better and faster decisions. It’s well worth the read and sitting with your team to think through the implications for your business. One way we hope to use this technology is with our mechanical team so they can access repair manuals in front of the machine instead of going back to a terminal. Download the app before reading the article and it will literally jump out at you from your phone. This reality does not bite!

There are few more cathartic consumer experiences than writing a hostile, customer complaint letter to a large corporation. I had the pleasure of United Airlines providing me with the glorious opportunity to wage war with my pen. My letter below to the CEO, Oscar Munoz, did not earn me a free ticket, but it earned me a few extra miles for the effort and simply felt great.

I know it’s been a rough time lately at United, but you really have issues if my Tel-Aviv flight today is typical (and you know as well as I that bad product is usually system wide and not one off.) You can change the name of your Business First service to Polaris as many times as you want along with the new Saks blankets, but the service on this flight was more business “Last” than Polaris. If you have bedding, should they not be offered? If you have coffee in the AM, should it not be offered? Never mind a refill. Are bathrooms (note plural) without trash spilling out too much to ask? Do you ever fly Delta or even Emirates business to learn a trick or two? Lufthansa? Not a people known for bedside manner, but they’ve clearly been ordered to smile! Ever eat in a good French restaurant where staff ask you if you need anything or are proactive? Maybe you are having a labor slow down? I would fire this cabin crew or drop them in the polar ice for a week to contemplate the word service or that misnomer for service called Polaris. Anyway thanks for reminding me why marketing without great product is simply fraud. Regards. Fred Horowitz. Seat 11e.

One of my good friends, Kevin Coupe of Morning Newsbeat, scored one of the best interviews of the new year. In his conversation with Tom Furphy, a former Amazon executive, he drills deep into Amazon’s secret sauce as well as its implications for the rest of us who are living through the “black plague in retail”. From overall retail to the impact of Alexa, it’s a great conversation, or as Kevin would say, “An Eye Opener” and you won’t find it in the Wall Street Journal or the NY Times. You can listen to the interview here: The Innovation Conversation

A theme for this year is going to be how big brands reinvent themselves to look “smaller” and more authentic. Between Amazon, Aldi and a generational bias towards less processed food, the big brands are under incredible pressure. But there is light in the tunnel. When the owners of brands invest in the “soft marketing” and brand building that is not price/promotion focused, they have a pathway to beat back the changing retail structure and dominance of low cost retailer managed private brands. The 2017 story of Cheetos creating a pop up restaurant is a great example what the winners will be doing over the next few years.

The Wall Street Journal: “The Spotted Cheetah, a pop-up restaurant small big brands specializing in dishes made with Cheetos, has sold out all of the roughly 300 reserved slots for its three-day run, say officials with PepsiCo’s Frito-Lay division that makes the snack … Spaces were gone within six hours of last week’s announcement of the opening, officials said, adding that there is currently a waiting list of more than 1,000 people should anything become available.”

“The Cheetos restaurant, helmed by celebrity chef Anne Burrell, will feature several varieties of the snack in close to a dozen dishes … Menu items, priced from $8 to $22, include Cheetos meatballs, Cheetos grilled cheese with tomato soup and Cheetos-crusted fried pickles. There are even desserts made with Cheetos, albeit the Sweetos variety of the snack.”

If you can’t beat them join them (or buy them) is the mantra of the largest consumer product companies for the upcoming year. With minimal entry costs due to the low costs of digital media, combined with easy to find quality contract manufacturing, little brands have spent the past few years getting big fast and causing real pain to the largest companies. With consumers in the mood to spend up for (perceived) quality, it’s easier than ever to get consumer trial for a new brand because price is not the driving consumer focus.

The Wall Street Journal started 2018 with a great piece on Unilever and how they’ve adjusted their global branding to meet the challenges of these fast paced “ankle biters”. As someone who was once called an ankle biter by a dear wall street friend (oxymoron), I can think of no better compliment or sign that larger companies never see the train in the tunnel until it’s too late.

We who disrupt are not ankle biters. We are going right for the jugular of their business models, but it takes time for those companies to feel the cut until it’s too late. Read the WSJ piece here: Outfoxed by Small – Batch Upstarts, Unilever Decides to Imitate Them, as a great primer on one of the key battles that will be fought in 2018.

It’s Waterloo time for brands as the sea of private label obsessed retailers low ball their way across the globe leveraging technology and new distribution channels to blitzkrieg around the branded “Maginot Lines”.

Design is where brands can beat private label whose masters and commanders are less obsessed with design than with margins. So it was with pleasure that I heard Michael Bierut one of the best designers of our age is coming out with a new book titled Now You See It and Other Essays on Design. It’s a series of essays which can lead you to some of his other works which will inspire you to design higher.

In a hundred years there will not be a single private label brand displayed in the Museum of Modern Art. But hopefully one of yours (or our) brands will be featured. Read this terrific and witty interview about Bierut and I promise you’ll feel the potential for design. How can you not enjoy a writer who says, “My favorite cartoon character is Wile E. Coyote. He had this endless faith and brand loyalty and never thought to try the competition even though Acme products failed him time and time again.”

To understand Amazon‘s success, I need to digress a bit. A few years ago I visited a leading mid-western department store retailer on a regular basis overseeing their work with a brand they licensed from me and my partner. At the first few meetings in 2008 there were 5 people in the room (three from the retailer) as we meandered through a “new” corporate headquarters filled with empty chairs and easy parking.

Within two years the meetings were with a team of over 25 people (we were still 2 people) and my partner was introducing members of the retailer’s team to each other after fighting to find a big enough and unused conference room, never mind finding a parking place. Other than killing our brand along with many others they licensed during that period, the handwriting of bad management was literally around the overcrowded table around which no one could move forward.

With that story in mind, one of the better “digestif” pieces about Amazon/Whole Foods is in Harvard Business Review. The analysis focuses on investment in R&D and its clear where this story will end. But there is a chart buried in the story that is amazing. It lists, by year, the new initiatives taken by Amazon and whether it was successful or not. Red means bad and blue means success. Blue outnumbers red, but not by as much as you’d think. What is “Blue and Red”, is how innovative Amazon is relative to all others. We all knew this, but the chart captures the epic pace of innovation.

As I said in an earlier post, this is the Waterloo moment for the grocery industry and all of supporting brands because of the private label angle. Scott Galloway of L2 has a chart that illustrates private label penetration at Whole Foods vs Amazon Fresh. Brands must innovate and fast.

So what is the HBR secret innovation sauce analysis? “Amazon CEO Jeff Bezos famously believes that if you can’t feed the team with two pizzas, it is too large”. Thank God my competitors don’t even think of pizzas! There is clearly much more to innovation, but as they say, size matters.

Its Game of Thrones time with the unfolding battle between Amazon, Aldi, Wal-Mart and the growing food oriented Dollar Stores. Kroger melting down and Amazon buying Whole Foods are just the tip of the coming “winter” in grocery retail. As if there were not enough potential for retailer margin impact, the stealth European giant Aldi is firmly committed to a private label only strategy which puts more pressure on brands. If you thought food and household products were in a deflationary spiral, this slug fest at the bottom says it’s a long-term 3-5 year battle.

The WSJ had a story called “Pressure on US Grocers Rises”. Pressure is not the word. Final nail in coffin is better. For 30 years the grocery industry has ceded market share to Wal-Mart which was barely in food when it started! Aldi, the European low cost “Ryan Airways” of grocery, is planning to open 900 new stores with 5 billion dollars in the US market. Lidl is also ramping up and if you have not visited one of these stores you must. And Amazon is now taking a leadership position by overlaying their consumer technology and warehouse expertise onto a premium and well located chain of stores.

Between Aldi at the bottom and Amazon/Wholefoods at the top, this is the coupe d‘grace for the Grocery retail sector which is the worst managed retail segment in American retailing. With a dead man’s focus on slotting fees and illegal charge-backs, the Grocery chains long ago forgot how to be merchants and innovators. Except for a select few like the innovator Wegman’s, there is little to miss after they ceded almost half of the entire food market to Wal-Mart during the past 30 years.

There is another serious deflationary piece on top of all this. Amazon recently signaled it’s entering the fight to take market share at the lower end of the demographic market. With Prime household penetration at 50%, the next segment for growth is the 50% of American households below the median household income line. Of course with the Whole Foods acquisition, they just bought 431 “fresh distribution/pickup centers” and with the highest demographic customers in the market. Hi end/low end…Amazon wants it all. But let’s focus on the larger end, the lower demographics.

Most commentators, such as the WSJ, think that Amazon is aiming at Wal-Mart. Clearly they are, but there are two looming competitors that are sharper and tougher for Wal-Mart to battle in the lower end market; the above mentioned giants of the value segment, Lidl and Aldi.

The WSJ has a great chart of food stamp customers which illustrates the relationship between Amazon, Aldi, Wal-Mart and the dollar stores. This story, which may be the most significant one in years, if you sell the mass market, shows how Amazon wants that market and is making some incredible changes around payment systems for the un-banked, delivery for security challenged areas, and lowering the cost of Prime membership. This is the first time that I’ve seen an Amazon strategy that is capable of hurting the dollar stores and Wal-Mart all in the context of the massive Aldi and Lidl launches.

Amazon may have cracked the digital divide and entered, what has been to date, that last retail corner immune to the digital wave. It’s still too early to call the winner(s), but the household products and food industry are in for some serious deflation/price pressure. Wholefoods, with Amazon at the helm, will morph from “Whole Paycheck” into “Half Paycheck”. Far from value but they can easily double the sales by cutting pricing and passing through their better back end management. Food, like war, is a logistics battle and nobody other than Wal-Mart can compete with Amazon.

So if you are a brand owner, ramp up the marketing. As the old Chinese proverb says, “The more you sweat in peacetime, the less you bleed during war.” The only defense against price deflation is a strong brand.

America has the highest per-capita amount of retail real estate of anywhere in the world. And with the digital world crashing the world of brick and mortar, a lot of “b” and “c” malls need major changes in their customer bases.

According to some analysts, over 400 of the country’s 1100 malls may close in the next few years. Fortunately, Adam Smith (with some help from Henry Ford), is quietly riding to the rescue. The WSJ had a story titled “The Mall of the Future Will Have No Stores” about the re-purposing of a Michigan mall into a combo traditional mall by re-configuring one of the major retail anchor spaces into significant engineering design center for Ford Motor Co. for almost 2,000 of employees. The key to all of the re-purposing around the country has been to add either office space or residential into the retail mix.

Nothing like a market evaporation to bring out the creativity. My bet is we are entering a new golden age of Malls and far from the headline of the “Mall of the Future Will Have No Stores”. Or as Henry Ford said, “Failure is simply the opportunity to begin again, this time more intelligently”.

There is no better moment than realizing your brand is strong enough to move outside of its original category into an adjacent category or even make the epic move to a “lifestyle” brand.

The NYT had a great story that addressed the move of brands such as Aston Martin into the lifestyle category. Aston has licensed its name to a line of residential apartments in Miami, speedboats and sunglasses all derived from its “art of living” experiences which built upon the brand’s storied history. The key was finding partners who were as dedicated and knowledgeable about branding as Aston.

But the fun part of the article chronicles the bad moments when brands reach for a “bridge too far” or found the wrong partner. Colgate brand frozen dinner entrees, Zippo perfume and Harley Davidson cake decorating are worth learning about. Of course being the NYT, they could not “resist” throwing in a Trump licensing angle too.

The reality is that licensees who are sophisticated trustees of the brand’s adjacent

core values usually add value. The issue is when a large company sees the dangling image of guaranteed minimum royalties without taking a deep dive into brand management issues that come from choosing the wrong partner. As the article notes, “shoddy” work can be catastrophic for a brand not only in the extension, but in its core product.

The article quotes the brand expert Larry Light “Just plopping a brand logo onto a product… is a recipe for failure. Giving somebody the logo and then hoping the execution will live up to the brand promise-that’s a very risky strategy”.